New OECD Macro Forecasts: What a Difference a Half Year Makes

November 28, 2011

The Organization for Economic Cooperation and Development, consisting of 34 developed economies, publishes semi-annual forecasts in May and November.  New forecasts released today identify critical risks posed by the euro debt crisis and a potential substantial dose of U.S. fiscal restraint.  Growth forecasts are well below those estimated last May yet do not represent the direst possible scenarios.  The latest OECD Outlook presents baseline growth estimates that explicitly “assume that policy-makers take sufficient action to avoid disorderly sovereign defaults, a sharp credit contraction, systemic bank failures and excessive fiscal tightening.”  Many investors are less confident about these possibilities as attested by last week’s ugly market conditions.

Real GDP growth in the euro area next year is projected to rise only 0.2% in the new baseline forecast.  That’s down 1.8 percentage points from 2.0% predicted six months ago, and expected growth in 2013 was penciled in initially at a slower rate than what OECD analysts had been assuming in May about 2012.  The more downbeat view is widely shared in peripheral and core members of Euroland.  Among selected key European economies not in the euro area such as Sweden, the U.K. and Switzerland, likely GDP growth next year has also been slashed in the new Outlook.  The column headings below indicate the year for which the forecast applies and whether the estimate was made in May or November of this year.

GDP, % 2011-Nov 2012-May 2012-Nov 2013-Nov
Euroland 1.6% 2.0% 0.2% 1.4%
Germany 3.0% 2.5% 0.6% 1.9%
France 1.6% 2.1% 0.3% 1.4%
Italy 0.7% 1.6% -0.5% 0.5%
Sweden 4.1% 3.1% 1.3% 2.3%
Britain 0.9% 1.8% 0.5% 1.8%
Switzerland 1.8% 2.5% 0.8% 1.9%


A second table below for the OECD, United States, Japan, Canada and Australia shows how the euro debt crisis has cast a cloud over economic prospects well beyond Europe.  The main transmission vehicle of weakness to such areas will be through financial markets rather than trade flows.

GDP, % 2011-Nov 2012-May 2012-Nov 2013-Nov
OECD 1.9% 2.8% 1.6% 2.3%
United States 1.7% 3.1% 2.0% 2.5%
Japan -0.3% 2.2% 2.0% 1.6%
Canada 2.2% 2.8% 1.9% 2.5%
Australia 1.8% 4.5% 4.0% 3.2%

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


One Response to “New OECD Macro Forecasts: What a Difference a Half Year Makes”

  1. Steave says:

    The markets seems to be volatile and this will be first half of 2012 for sure.